Falling unemployment helps the Government – but rising self-employment shows that it's not worth boasting about

We are, as everyone must know by now, in a double-dip recession. The amount of stuff that the country is producing is less than it was. So the latest unemployment statistics are a bit of a puzzle. You can see the ONS's release here: full-time employment is up by 82,000, part-time employment is up by 83,000 and overall, unemployment is down by 0.2 percentage points, or 51,000. Public sector employment is down 39,000 and private sector employment is up 205,000. (On the other hand, the claimant count – the number of people on the dole – has increased).

So more people are working, and yet we are producing less stuff: that's a bit weird, though not new to the British economy. The great puzzle of the last four years has been explaining why, despite the recession being far worse for GDP than many previous ones, unemployment did not shoot up in the way that it did in say, the 1980s. Its peak, in November, of 8.3 per cent, was still far lower than the peak in 1993 at 10.4 per cent, let alone the 11.5 per cent-ish the country endured throughout the mid 1980s. So this time around, productivity – the amount that each worker produces – must be falling in a way that is very strange.

How do we explain this? Possibly, the GDP stats are wrong: actually, contrary to what the Office for National Statistics says, we are undergoing a modest recovery. That's what Hamish McRae said in the Independent last month. But the OECD also thinks that the UK is in a double-dip recession, as does the IMF, and most other private sector forecasters. Possibly workers are being pushed out of high-productivity full-time work and into low-productivity part-time work – but while that was true six months ago, the latest statistics show that the number of full-time workers is up.

So the best explanation I can see is this one: the increase in the number of self-employed people accounts for most of the increase in employment – 84,000 more people are self-employed than were three months ago. Given that self-employment can include anything from ad hoc babysitting to window cleaning, the rise in self-employment would explain why employment is increasing even as GDP falls: people moving into self-employment are earning far less than they used to earn (assuming of course that they are declaring all of their income to the taxman…).

The Government should not boast too much about falling unemployment; it is not proof that their economic strategy is working. But don't expect that to deter them from trying: William Hague will be sure to raise the numbers at Prime Minister's Questions today.

Update: A useful briefing note from the CIPD which explains how self-employment has helped mask some of the rise in unemployment over the last few years.